How to Determine if an RHS Loan is Right for You
Rural Florida is a great place to live, work, and raise a family. You might want to buy real estate in a rural area but don’t have a high income or can’t obtain a home mortgage loan from another source.
An RHS Loan provided by the USDA Rural Housing Service could be a great option to help you become a homeowner. This article will overview the RHS Loan Program, the eligibility requirements to qualify for the loan, and a few pros and cons to help you decide if an RHS loan is the right option for you.
What Is an RHS Loan?
RHS Loans are home loans provided or guaranteed by the Rural Housing Service as part of the U.S. Department of Agriculture to help low to moderate income borrowers buy homes in rural areas. The RHS lends directly to buyers who meet qualifications and guarantees loans made by approved lenders. The RHS is dedicated to rural development and provides loans and grants for rural community services like schools, hospitals, libraries, and more. The primary purpose of RHS home loans is to ensure that rural Americans and Americans in the agriculture industry have clean, safe, and affordable housing.
An RHS Loan can cover up to the total amount of the value of the property as well as additional home-buying-related expenses. You can also use the RHS Loan to:
- Pay closing costs, legal fees, and property taxes
- Build property, relocate property, and repair property
- Improve property, like building an addition to the home or adding fencing to the yard
- Purchase essential home equipment like appliances, carpeting, and HVAC
RHS Loan Requirements
Both the borrower and the property must meet certain specific criteria to qualify for an RHS Loan. Most requirements are related to the applicant’s income eligibility and the property’s location.
Applicants must meet the USDA Rural Housing Service requirements to qualify for a USDA Home Loan. Most of these requirements are related to household income and financial matters, such as income limits, existing debt, and payment history. Similar to a conventional home loan application, an applicant for an RHS Loan must provide documentation to verify income and employment status.
Keep these factors in mind if you are considering applying:
- You must prove that you earn no more than 115% of the area median income for where you want to live
- Your debt-to-income ratio must be less than 41% of your adjusted gross income
- You’ll need to have a stable repayment history for your existing loans – usually 12 months
- You’ll need to be a U.S. Citizen, non-citizen national, or qualified alien to qualify
Property requirements to be eligible for an RHS Loan include location, size of the home, and features of the property:
- The property’s location must be in an area that the USDA classifies as rural
- The property’s location must be in an area with a population of 35,000 residents or less
- For a single-family home loan, the property must be a primary residence
- You can’t use the property for commercial purposes, income, or rentals like VRBO or Airbnb
- A home on the property will need to be under 2,000 square feet
- Unfortunately for residents of sunny Florida, the property cannot have an in-ground pool
Types of RHS Loans
The USDA Rural Housing Service offers two types of RHS Loans: loans for individual borrowers who want to purchase single-family homes and loans for commercial lenders to purchase multi-family properties for rental. Other loans are available for purchasing particular types of rural properties.
Single-Family Housing Direct Loans
The Single-Family Housing Direct Loan program is for a borrower with a steady low income who may not have the down payment or credit history to qualify for a conventional loan. The program provides payment assistance to reduce mortgage payments. First-time homebuyers are prioritized when funding is limited.
Multi-Family Housing and Other Loans
The Multi-Family Housing Loan program offers financing for commercial lenders to buy multi-family rental properties to create affordable housing in eligible rural areas. Loans are also available to purchase and preserve historic properties, help homeowners maintain their properties, and develop properties to house low-income families, elderly residents, residents with disabilities, and farm laborers.
Pros and Cons of an RHS Loan
An RHS Loan has several advantages and disadvantages depending on your life circumstances, household income, and where you’d like to live.
Pro: Low Down Payment
Unlike conventional mortgages, an RHS Loan has a low or zero down payment. This is an excellent advantage if you don’t have a lot of cash or you’d like to use your money to decorate or refurnish your new home.
Con: Home Must Be in a Rural Area
An RHS Loan might not be for you if you prefer city or suburban living. Only properties qualified by the USDA as rural are eligible.
Pro: Less Strict Credit Requirements
You don’t need a high credit score to qualify for an RHS Loan. You can still get a loan if you show your income is enough for the mortgage payment, property taxes, and mortgage insurance, and you have a stable on-time repayment history.
Con: Income Thresholds
RHS Loans are for very low, low, and moderate-income borrowers, so you won’t be eligible for the loan if you are a high earner.
Pro: Lower Rates
Affordable mortgage interest rates can make home ownership more accessible for borrowers. RHS Loan rates receive the same terms as a 30-year standard mortgage and can be as low as 1%.
Apply for an RHS Loan Today
Are you interested in purchasing a home in rural Florida but can’t get a conventional loan? Apply now with Associates Home Loan of Florida. We specialize in alternative lending services like USDA Home Loans and provide many loan options and flexible underwriting to help you buy the home of your dreams.